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CA Intermediate · Advanced Accounting · Financial Statements of Companies

Sagar Industries Ltd. has the following balances on 31 March: Trade receivables ₹9,00,000 (including ₹1,20,000 outstanding for more than six months from the due date and considered good), cash in hand ₹50,000, bank balance ₹3,50,000 and a fixed deposit of ₹2,00,000 with maturity 8 months after the reporting date. Ignoring other items, what is the total of 'Cash and cash equivalents' to be shown in the Balance Sheet, assuming the fixed deposit was made 4 months before the reporting date?

Cash and cash equivalents total ₹4,00,000, being cash ₹50,000 plus bank ₹3,50,000. The fixed deposit has an original maturity of twelve months, longer than three months, so it is not a cash equivalent and is shown separately as other bank balances.

  1. A₹4,00,000Correct
  2. B₹6,00,000
  3. C₹5,00,000
  4. D₹6,20,000

Explanation

Cash and cash equivalents = cash ₹50,000 + bank balance ₹3,50,000 = ₹4,00,000. The fixed deposit had an original maturity of 12 months (4 months elapsed + 8 remaining), so it is not a cash equivalent (original maturity must be three months or less). Including it gives ₹6,00,000, which is wrong.

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